U.S. stocks close higher on merger news

J.P. Morgan led advancing stocks on the Dow after getting an upgrade

By

NickGodt

NEW YORK (MarketWatch) -- U.S. stocks closed higher Monday after flurry of merger news, although investors limited the gains in a sign of caution one day ahead of a Federal Reserve decision on interest rates.

During much of the day, a rising dollar helped lower crude-oil prices, but the positive impact on sentiment was offset by declining energy shares.

Among blue-chip issues, shares of J.P. Morgan Chase & Co.
JPM, +0.67%
led the gainers, adding 1.7% to $47.55 after Morgan Stanley upgraded the stock to overweight from equal weight and raised its share-price target to $53 from $44.

Fellow Dow stock DuPont
DD, -0.74%
gained 1.1% after the chemicals company lifted its 2006 earnings forecast and said it would cut 1,500 jobs worldwide. See full story.

"People usually get excited about mergers," said Kevin Kruszenski, director of equity trading at KeyBanc Capital. "But it seems the market is a bit numbed about all this," and "it's now focusing on the Fed meeting tomorrow."

Deal-making provided momentum, although not necessarily to lift stocks.

Shares of Dow component Johnson & Johnson
JNJ, -0.55%
dropped 0.4%. The firm is expected to be one of several to may make an offer for medical-devices company Biomet Inc.
BMET, +11.11%
according to the Financial Times.

That London-based daily also reported U.K. company Smith & Nephew PLC
SNN, +0.34%
was expected to bid for Biomet for up to $12 billion. Biomet closed up 4.2%, while Smith & Nephew rose 1.6%.

Trading volume was 1.3 billion shares on the New York Stock Exchange and 1.84 billion on the Nasdaq.

Gaining issues outnumbered decliners 19 to 13 on the Big Board and 15 to 14 on the Nasdaq.

By sector, Internet issues
$GIN
telecommunications
$IXTC
and airlines
XAL, +1.36%
were leading to the upside, while oil-services
OSX, +0.36%
and biotechnology
$BTK
stocks were on the downside.

On Friday, stocks finished the session and the week higher, as a slightly stronger-than-expected November jobs report eased investor concerns about the extent of a U.S. economic slowdown.

The Fed is widely expected to leave interest rates unchanged Tuesday, but investors will closely monitor the language of its accompanying statement to see whether central bankers mention any of the weakness seen in recent economic data.

Stock investors have been hoping that the Fed would stop fretting about inflation, opening the door to possible rate cuts next year.

"A further modest softening of the Fed's language seems likely," said Ian Shepherdson, chief U.S. economist at High Frequency Economics, in a note. A real sea change, though, "will not come until January," he said.

"The goldilocks economy is still what's in play for the market," said KeyBanc's Kruszenski. "So far it seems the economy is holding up aside from housing and autos."

The market, Kruszenski said, will also want to see easing inflationary pressures in the November consumer price index, due to be released Friday.

Other markets

The dollar fell against the euro after former Federal Reserve Chairman Alan Greenspan warned that he expects a few years of a weak dollar. The dollar late in the day was quoted at 116.96 yen, compared with 116.29 yen late Friday. The euro changed hands at $1.3238, compared from $1.3201. See Currencies.

As the dollar rose, crude oil fell, losing 81 cents to close at $61.22 a barrel. Traders are also cautious about the ability of the Organization of Petroleum Exporting Countries to deliver productions cuts this week.

Gold, meanwhile, rebounded from heavy losses last week, with the February contract finishing on a gain of $3.80 to $634.80 an ounce. See Futures Movers.

Treasurys, meanwhile, closed higher. The benchmark 10-year Treasury bond gained 6/32 to close at 100 26/32, while its yield stood at 4.523%. See Bond Report.

Stock movers

Citigroup Inc.
C, +1.23%
gained almost 2% after U.K. press reports over the weekend identified it as having made an unsolicited offer for Egg, the Internet bank owned by the U.K. insurer Prudential PLC
PUK, -1.30%

On Friday, Citi's stock gained over 2%, breaking above its 52-week high, amid rumors that the bank would announce a restructuring and management changes at its investor meeting this week.

American International Group Inc.
AIG, +0.44%
rose almost 1% after the insurance giant said one of its units would pay an undisclosed amount to buy U.S. port operations from Dubai Ports World. Earlier this year, the United Arab Emirates-based company's purchase of the ports created a national-security uproar. See full story.

Time Warner
TWX, -28.57%
gained 2% after Prudential upgraded shares of the media giant to overweight from neutral, boosting its price target to $27 from $21, citing much greater cable margin expansion than it had previously expected.

Southwest Airlines Co.
LUV, +0.42%
rose 1.7% after a story in Barron's over the weekend said that while shares of the low-cost carrier trade at a large discount to peers, the stock could advance 15% next year. In addition, the airline could be the target of a leveraged buyout, Barron's said. See full story.

Ford Motor Co.
F, +0.42%
overcame early weakness to manage to close up 1 cent at $7.24 after a report it will extend buyout offers to most of its white-collar workers this week. See full story.

In addition, a U.K. press report said Ford's Aston Martin unit could be dealt for more than $1 billion to Syrian billionaire Simon Halabi.

AT&T Inc.
T, +0.09%
gained 0.6% after Bear Stearns said the telecom company would likely complete its merger with BellSouth by year-end.

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.